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With Deadline Looming, Congress Tries to Avert Government Shutdown

Congress Facing Possible Government Shutdown—Again

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

As members of Congress return to Washington on April 24 after a two-week recess, they are confronted with an all-too-familiar crisis: the prospect of a government shutdown at the end of the week.

The current funding agreement to keep the government open and operating, reached in December, expires on April 28. Without a deal to extend government funding past that date, a government shutdown will take place on April 29.

There has not been a government closure since the 16-day shutdown in October 2013, and the occurrence before that took place in 1996. Yet uncertainty surrounding the possibility of a shutdown has become an annual—if not more frequent—rite with the modern Congress.

Why do government shutdowns occur?

The threat of a government shutdown is now a regular part of the congressional landscape, and that’s because the basic budget process has broken down in Congress. Reaching agreement on how to divvy up funding for government programs has always been tricky, but as the partisan divide in Congress has widened over the past decade, it has become nearly impossible.

Each year, Congress is supposed to pass a “budget resolution,” a framework that outlines the broad parameters for government spending in the year ahead. The budget resolution defines the spending priorities of Congress, but it does not have the force of law. Congress has a spotty record of approving a budget— they last did it in 2015, and before that in 2009.

Lawmakers are then supposed to fill in the details of that spending on an agency-by-agency, program-by-program basis by passing 12 appropriations bills before the start of the government’s fiscal year on October 1. But the track record of Congress on appropriations bills is even worse—the last time Congress passed all 12 bills was 2002, and that was only after eight extensions past the October 1 deadline.

When Congress does not meet the deadline, it has two options.  Lawmakers can pass a “continuing resolution” in order to avert a shutdown. In recent years, continuing resolutions have been the norm. For the most part, however, continuing resolutions simply fund government operations at the same level as the previous year, without any changes to funding that reflect changing priorities or whether a particular program needs a boost in funding or perhaps should be terminated. 

The second option is to package multiple appropriations bills into one giant spending bill, known as an “omnibus” bill. 

In recent years, it has become common for Congress to do both: pass multiple continuing resolutions, known in Washington as CRs, to keep the government operating while it negotiates an omnibus bill to fund the government for the rest of that fiscal year. As each deadline approaches, there are threats and counter-threats between the two political parties about allowing a shutdown, but usually a last-minute agreement is reached. A repeat of this cycle in the week ahead is likely.

What issues are at play in this year’s shutdown threat?

As Congress returns to Washington, both parties are saying that they want to avoid a shutdown. In a government shutdown, national parks and monuments can be closed, contractor payments delayed and federal employees furloughed. Neither party has much to gain.

But with Republicans controlling the House, Senate and White House, the stakes for the GOP may be higher this time around. Adding to the potential public relations nightmare is the fact that the potential shutdown day, April 29, is the 100th day of Donald Trump’s presidency, a symbolic bellwether for all presidents.  

That’s why Republicans are playing down the chances for a shutdown. President Trump’s budget director, Mick Mulvaney, said earlier this month that a “shutdown is not a strategy and it’s not a desired end.” Senate Majority Leader Mitch McConnell (R-Ky.) told reporters he was “very confident” that there would not be a shutdown.
On the other side of the aisle, Senate Minority Leader Charles Schumer (D-N.Y.) said that “I want to come up with an agreement and my colleagues want to come up with an agreement,” characterizing negotiations earlier this month as “so far, so good.” 

But despite the talk of a harmony, no deal had been reached a week ahead of the deadline.

The key issue is whether the bill is a “clean” extension of funding—meaning free of extraneous and controversial policy or spending provisions. Mulvaney said in mid-April that the White House had four key priorities: a boost in military spending; an increase in homeland security spending, some of which will be set aside for the construction of a wall on the nation’s southern border; spending cuts to domestic programs; and the ability to deny federal funding to so-called “sanctuary cities” that do not adhere to federal immigration policies.

Democrats, however, are signaling that they will not support these kinds of add-ons. And they have their own priorities, including a resolution to a long-standing dispute over funding for coal miners’ health-care benefits and funding for an Affordable Care Act subsidy program that President Trump has threatened to defund.

Republicans will need Democratic support in the Senate, where their 52-48 majority is eight votes short of the 60-vote supermajority needed to repel a filibuster. So it is likely that some of the provisions most objectionable to Democrats will have to be dropped. 

Given the looming deadline, there is increasing talk in Washington that Congress will pass a short-term extension, perhaps for just a week, to give itself more time for negotiating a longer-term deal.

Expect minimal market impact

Historically, while the prospect of a government shutdown causes media and investor anxiety, the markets have reacted with indifference. In the six government shutdowns since 1985, the average change in the S&P 500® Index has been …virtually zero. During the 2013 shutdown, the index actually increased by 2.4%.

Reaching back even further, in the 17 shutdowns since 1976, the S&P 500 has declined an average of less than 1%. Only three times, all in the 1970s, has the index declined by more than 3%.

We think the chances of a shutdown this spring are low, but not zero. Investors, however, should not be overly concerned. 

What you can do next

  • If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the political noise and focus on your long-term goals. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
  • Watch Schwab experts discuss other market and economic topics in the Schwab Market Snapshot.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

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Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, business, and other conditions.

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S&P 500® Index is a market-capitalization weighted index that consists of 500 widely traded stocks chosen for market size, liquidity, and industry group representation.

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